R&D investment as a signal in corporate takeovers

M. Pilar Socorro
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M. Pilar Socorro: Departamento de Análisis Económico Aplicado, Universidad de Las Palmas de Gran Canaria, Las Palmas de Gran Canaria, Spain, Postal: Departamento de Análisis Económico Aplicado, Universidad de Las Palmas de Gran Canaria, Las Palmas de Gran Canaria, Spain

Managerial and Decision Economics, 2009, vol. 30, issue 5, pages 335-350

Abstract: The purpose of this paper is to analyze the effects that takeover threats have on firms' preacquisition R&D intensity. Critics of takeovers usually argue that takeover threats may reduce target firms' R&D investments. However, I find that target firms may increase R&D investment in order to signal their compatibility with the acquiring firm. The identity of the acquired firm depends on the market size and target firms' efficiency and compatibility. Through R&D investments, target firms may affect this result, signaling potential outsiders the kind of competition they may face, and forcing them to accept lower takeover offers. Copyright © 2009 John Wiley & Sons, Ltd.

Date: 2009
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